When Cole A. Zanetti, DO, decided to go to medical school, he initially cast a wide net in applying. But the sticker shock of tuition at several schools caused him to scale back his efforts—in fact, he declined interviews at some schools, certain he wouldn’t be able to afford them.

Dr. Zanetti eventually chose the University of North Texas Health Science Center Texas College of Osteopathic Medicine (UNTHSC/TCOM) in Fort Worth, a public institution that offers cheaper tuition because the state chips in. The difference is significant—out-of-state tuition at UNTHSC/TCOM is less than in-state tuition at many other osteopathic medical schools.

The substantial effort Dr. Zanetti put into reducing the cost of his medical education still left him saddled with a lot of debt—and an unwanted mortgage. He borrowed money from family for a down payment on a Texas condo, a move that would let him establish residency and further cut his tuition. Four years later, he rents out the condo at a loss while he and his wife rent a house where they live in New Hampshire. And while Dr. Zanetti attended the least expensive osteopathic medical school, according to the American Association of Colleges of Osteopathic Medicine (AACOM), he graduated with $180,000 in loan debt from medical school.

“Everybody expresses medical school as an investment,” Dr. Zanetti says. “It surely is. But coming out of the gates having at least one mortgage before you even have your own house, at the very least, is a very stressful thing to have to bear.”

Juggling debt, other financial goals

Many other osteopathic medical residents will relate to Dr. Zanetti. Facing down six-figure debt can feel overwhelming when you’re earning $45,000 to $50,000 per year. Residency is the first salaried job many physicians have. And with salaried jobs come thoughts of homeownership, nest eggs, and maybe even travel and leisure after years of hard work, schooling and spaghetti dinners.

But foremost on the minds of many DO graduates is the gulf between their debt and their relatively modest resident’s salary. Among osteopathic medical students with debt, the mean amount owed upon graduating is $205,674, according to AACOM data.

The temptation is to defer loan payments until after residency or to do the opposite and pay down loan debt while putting other financial plans on hold. But it’s important to tackle debt while working on other money goals concurrently, even if you have limited funds, says financial planner Julie Murphy Casserly, author of The Emotion Behind Money.

“If students want to become doctors, the tuition for school and loans shouldn’t deter them.”Dr. Boylan

“The more you can clean up your past, the more freedom you have to create your future,” Casserly says. “And I don’t think you should do either-or; you need to do them at the same time.”

Interns and residents frequently defer loan repayment during their graduate training, says Mark Kantrowitz, the publisher of the college planning sites Fastweb.com and FinAid.org.

“They have a feeling that they should wait until they have the six-figure salary to start repaying their debt,” he says. “And the problem with that approach is that interest accrues during deferment or forbearance.”

For instance, four years of deferring a $120,000 loan balance at 6.8% interest will add $37,151 to the total and increase the amount owed by nearly one-third.

Know your options

Kantrowitz suggests graduates consider extended loan repayment or income-based repayment during their residency years. Income-based repayment is by definition an affordable monthly payment, he says, and extended loan repayment is also almost always affordable.

Income-based repayment is what Dr. Zanetti opted to do with his debt. Now in his second year of a family medicine residency at Concord Hospital in Concord, N.H., Dr. Zanetti also plans to participate in the federal Public Service Loan Forgiveness (PSLF) program. PSLF will lighten his debt load by about $70,000 plus accumulated interest after a decade, he estimates.

“After calculating interest based on the total amount owed over 10 years and how much I would be able to pay,” he says, “it was the only decision that was realistic.”

Established by Congress in 2007, PSLF provides complete forgiveness of federal student loans for physicians who make 120 payments under an income-based repayment plan and who work for certain public-service employers for 10 years.

Michael J. Oleyar, DO, a third-year anesthesiology resident at The Johns Hopkins Hospital in Baltimore, is also using income-based repayment, and plans to use PSLF, to pay off his loans.

“Without income-based repayment, I worry that I wouldn’t be able to repay the loans or avoid serious financial trouble,” Dr. Oleyar says.

Both Dr. Zanetti and Dr. Oleyar say not enough medical students and residents are aware of PSLF as an option.

“Most of my fellow medical students and a lot of my fellow residents didn’t know what it was,” Dr. Zanetti says. “Maybe 2 out of 8 had even heard of it.”

Drawbacks of debt forgiveness

However, while PSLF is a great option, Dr. Zanetti says it is not without its problems. The sign-up process for income-based repayment, one of the payment plans graduates must use to participate in PSLF, was “complicated and incoherent,” he says, and he and others planning to use PSLF live in fear that the program will be discontinued before they log 10 years of payments.

“Of the people who are aware of the program and plan to use it, that’s their biggest fear,” he says. Budget-trimming lawmakers could zero in on PSLF, Dr. Zanetti says, because the program requires the government to absorb substantial sums of student debt.

Dr. Zanetti’s distress is not unfounded. A Q&A on the U.S. Education Department’s website reads, “The Department cannot make any guarantees regarding the future availability of PSLF. The PSLF Program was created by Congress, and, while not likely, Congress could change or end the PSLF Program.” When contacted for this article, an Education Department spokeswoman wrote in an email that the department could not provide an on-the-record comment.

A recent House bill proposes forgiving public-service workers’ debt after five years of payments instead of 10, but the legislation is still in the infancy stage.

Dr. Zanetti says if PSLF is canceled before his 10 years are up, his backup plan is to enter the National Health Service Corps (NHSC), another federal program that provides loan repayment for physicians who work in underserved areas.

Consider your happiness

While programs such as PSLF and NHSC can relieve new physicians of a significant amount of loan debt, financial advisers say physicians should only use the programs if they are truly passionate about working in a nonprofit setting or in a rural area. They caution against going into the programs purely for loan repayment purposes.

“Without income-based repayment, I worry that I wouldn’t be able to repay the loans or avoid serious financial trouble.”Dr. Oleyar

“Going to a rural setting or going to someplace where the medical need is great is not going to be financially lucrative,” says David Morganstern, a certified financial planner, a member of the MD Preferred Financial Adviser Network and the CEO of Confluence Wealth Management. “Physicians are going to be doing this because it meets some sort of intrinsic ethical issues or it nourishes their souls. It’s not for everyone.”

Rural jobs may pay less than those in bigger cities. Also, participating in a loan forgiveness program may not prove to be advantageous if the physician doesn’t like the position or the location.

“If you go into a job and you’re only doing it because they’re paying for your loans, then you’re probably jacking up your credit cards on the other side of the fence because you’re not happy at your job,” says financial planner Casserly.

Maria T. Boylan, DO, a first-year family medicine resident at Concord Hospital, wants to make sure she finds the right job for her, money aside. She’s not sure if she’ll use PSLF. If the right opportunity comes along and it’s PSLF-eligible, she’d like to take advantage of it, but she doesn’t want to be bound to certain institutions, she says. Her $240,000 loan debt did not impact her decision to pursue family medicine.

“I’m one of those follow-your-heart kind of people,” she says. “I’m going to have loans no matter what specialty I go into, and I’m still going to have to pay them off. And if it takes me 10 years or 30 years, it doesn’t really matter.”

Before residency, medical students should anticipate what kind of work and lifestyle will make them happy, and then look for a loan repayment program that aligns with their aspirations, says Tyler C. Cymet, DO, the associate vice president for medical education at AACOM.

“The programs work best when you’re doing what you want to do,” he says, “as opposed to doing what you think is going to get you the most payback.”

Goals vs. debt

Once graduates are settled in residency and have a loan repayment plan in place, they should work on another plan—one that encompasses other personal financial goals, says Morganstern. Keeping a budget and tracking spending are key, he says, as is patience.

Although recent graduates will want to do these things eventually, saving for retirement, a new car or a down payment on a house can wait a few years, Morganstern says. He notes that houses are not necessarily a good investment. There’s no guarantee the value of the home will increase, and homeowners are saddled with a host of expenses that renters don’t have, such as property taxes and maintenance.

“People want to have a yard and have a nice something they can call their own—that’s the American dream,” he says. “But recent graduates might consider renting just to get their finances stable.”

Jessica Patel, personal finance analyst for Bankrate.com, agrees with Morganstern that a home purchase doesn’t need to happen right away—it’s something residents should plan for, she says.

“Don’t wake up right after you finish medical school and decide, ‘I’m going to buy a house,’ ” she says. “To get what you want, you may have to make other sacrifices in order to achieve those goals.”

Dr. Zanetti—already a homeowner and landlord—says he is reluctant to take on any more debt for the time being. Dr. Oleyar’s sentiments are the same.

“With a large amount of medical school debt, I’m fearful to take on any more large debts,” he says.

Save for retirement?

Retirement may be far from physicians’ minds when they’re starting their careers, but it shouldn’t be, says Web publisher Kantrowitz. Because of medical school and residency, physicians have shorter work lives than most people, so it’s important to start saving for retirement immediately, Kantrowitz says.

“The system is geared to almost take advantage of a loan-based payment system to keep institutions afloat when funding keeps getting cut.”Dr. Zanetti

“You have 30 years to save enough money for retirement,” he says. “If you get used to living below your means, you won’t have to sacrifice your lifestyle later.”

Bankrate’s Patel suggests thinking of retirement as a bill—a bill for your future.

“Each month you can say, ‘I have to pay $100 for my cable bill, and I also have to pay $100 for my retirement fund,’ ” she says. “If you consider it a bill, you’re planning for your future.”

But new physicians will have more immediate financial needs than retirement, Morganstern counters. They may be better served by concentrating on loan repayment and saving for emergencies before adding retirement savings to the mix.

Disability insurance: Necessary?

However, Morganstern says recent graduates should immediately consider how their debts would be paid were the unthinkable to happen—an accident or illness that causes disability or otherwise restricts them from practicing.

“Physicians’ disability insurance is critically important,” he says.

A quick search of AOA-approved residencies showed that most, but not all, offer disability insurance, though employer-sponsored insurance may not cover loan payments. Physicians may have access to provider recommendations or discounts through their state’s osteopathic association or a specialty association. The AMA Insurance Agency has compiled tips for physicians on selecting disability coverage.

Dr. Zanetti says he has basic disability insurance through his employer, though he’s not sure exactly what it covers, and he plans to examine disability insurance in detail after finishing residency. Being saddled with loan debt but unable to practice medicine is a terrifying thought, he says.

Where dreams, debt intersect

Medical residents may put off ironing out their finances for a few different reasons, says Bradford W. Landry, DO, the chairman of the AOA Council of Interns and Residents. They typically have limited financial education, he says, and they are often preoccupied with their residency work.

“People don’t necessarily go into medicine for money anymore,” he says. “That’s not our main goal, so we tend not to think about those things until much later.”

Dr. Boylan agrees. Students shouldn’t let money get in the way of their chosen career path, she says.

“If students want to become doctors, the tuition for school and loans shouldn’t deter them,” she says. “Because if they’re passionate about it, they should just follow their dreams.”

But Dr. Zanetti says he worries about the debt loads of future generations of medical students. Tuition is rising quickly, he says, and the current medical school model may be unsustainable.

“The system is geared to almost take advantage of a loan-based payment system to keep institutions afloat when funding keeps getting cut,” he says. “We’re creating more and more debt not only for our students but for this country. What are we supposed to pay off our debt with if we’re expected to live?”

I disagree with renting vs buying a modest home. Physicians typically make too much to getalot of tax breaks but a home gives you one. You wont be claim the interest on you student loans thats for sure. I certainly wouldn’t want to rely on our government to bail me out in 10 years either. The medical school is the only place changes can really be made. We need to hold them to the fire. My favorite thing is when they ask me for money every year. Every year I tell them when my loans to you are paid off I may consider it.